Introduction: Barriers to Intelligent Production Operations
During these challenging times, with rigs drastically cut & completion crews on indefinite hold, finding ways to immediately impact cash flow is critical. While there is so much talk in the industry around Intelligent Operations, Intelligent Production, etc., there are some much more simple ways to quickly (and often inexpensively) improve cash flow in the short term by working directly with your field production teams. This not only takes advantage of cash flow opportunities in the near term, but it also lays a foundation toward setting up Intelligent Production Operation initiatives going forward.
If you are a C-Suite, Division VP, or field leader, there are three impactful strategies your team can implement today to drop more revenue to the bottom line. Over the course of this blog series, I’ll explore these strategies, which will include getting out in the field and starting a conversation with pumpers and lease operators, investing in your field production teams, and leveraging your production and non-op data to boost cash flow. But first, a little about my 30-year journey in the energy, technology, and operations space.
Unprecedented Change – 1990 to 2020
As a kid entering this industry in 1990, I knew only a little bit about the industry. I was starting a career in a post-80s oil bust era that had chased a lot of good talent away. Literally, only the strong survived and there was about a 10-15 year age gap in the patch between those that remained and me. Those that remained were resilient, creative, hard-headed, and mostly broke. And those that remained fiercely loved the industry, its independence, and the opportunity that they knew was waiting at the end of the next drill bit.
All that added up to an industry that had attracted very little capital in 10 years. In fact, many leaders of the operating & service companies that had started in the dust, mud & crude of the oilfields were leaders in part, because there were so few left who understood the business. But the mighty few that remained all believed, which led to unprecedented change over the next 30 years They believed that the movement of the oil & gas “majors” out of the lower 48 created huge opportunities for nimble independents and that new & coming technologies would unlock the key to the domestic US oilfields. And those leaders believed that they could paint a vision for newcomers that would draw lots of talented, smart & creative folks back to “the patch”. It turns out they were right.
The next 30 years in the patch brought us a windfall of technology and innovation. Think of the leap forwards we’ve had in 2D and 3D seismic technology, horizontal drilling, and amazing geo-steering technology advances. It seems that innovation had reached every corner of the industry, from stacked horizontal laterals to advanced completion & stimulation technologies. And the application of all these new technologies had a massive impact in opening up brand new plays, and revitalizing plays from the late 1800 & 1900s.
Due to the advances in exciting new technologies, energy became a destination for young engineers, geologists, landmen, IT personnel, financial analysts, and aspiring leaders from every field and background. And because of the lack of infrastructure & investment over the previous 10 years, as the price of oil & natural gas increased, so did the incentive & opportunities to invite capital back into the industry.
2020 – The Future: Even More Opportunity Ahead
Our industry is wonderful and strange at the same time, full of contradictions. With so much positive change over 30 years, how can the four areas of technology, innovation, people & opportunity still need to change, or worse yet, have they not changed much at all? As advanced in technology as the industry has become in areas such as drilling, completions, and geoscience, other aspects are virtually antiquated such as business segment and enterprise-level resource planning software (ERP) on platforms designed 30+ years ago, yet still considered “best in class.” Think of what oil and gas ERP covers and the implications are astonishing. Upstream oil and gas companies pervasively rely on vintage technology to run their business, from production accounting and allocations, to their general ledgers and revenue disbursement. And it’s no better for midstream companies where plant processing and core accounting functions run on legacy systems from the ’90s. Adding to the overall lack of innovation is the industry’s addiction to spreadsheet allocations & workarounds in a ‘Silicon Valley’ era.
For production operations, there are still hundreds of thousands of wells still in need of cost-efficient automation to optimize rod lift wells, as well as other lift types including plunger, etc. There are tens of thousands of wells ripe for production optimization using emerging data science technology and well pads, tank batteries, and artificial lift systems that are not optimized or take advantage of real-time auto-adjusted well settings.
The field is plagued with antiquated approaches to tank leak detection and well prioritization for field staff where pumper and lease operators have a direct or assumed directive to hit every well every day, vs operating by exception (due to legacy well leak concerns, etc.). Part of the problem is cultural where preference dictates whether or not to fully utilize field technology due to apprehension by seasoned field leadership to the real & severe effects of tank leakage, methane leaks, flare concerns, oil theft, etc. The end result is an inability for the pumper & field techs to optimize, analyze & maximize base production while reducing Lease Operating Expenses (LOE), thus increasing cash flow per well and per BOE. And the industry needs better technology tracking and feedback loops between planned, actual, and re-design for drilling, completion & production teams.
With the amazingly talented people that the industry has attracted with technology in corporate headquarters, regional & field offices, it is also an industry slow to change field practices unless better alternatives are proven. But with all of these challenges, there is still low hanging fruit and exciting opportunity to turn the ship around and make impactful change today. I’ll begin exploring those opportunities in the next post where I’ll present the first step in a three-point blueprint to immediately boost your cash flow.
|Kevin Decker, President PEAKE, LLC. Kevin Decker has nearly 30 years of experience with independent E&Ps, building and leading teams in the space where finance, field technology, and operations services converge. His extensive experience includes optimizing field production processes, developing best-in-class M&A integration processes with 135 acquisitions in 10 years, and optimizing drilling efficiency and base production by applying data science and analytics to operations support center challenges. Kevin is President of Peake, LLC, an energy, technology, and management consulting firm. He spent the bulk of his career at Chesapeake Energy where he held various senior management positions, including Director of Intelligent Production Operations, Director of Integrated Field Operations, and Director of Operations Data Services. Kevin earned a B.S. in Accounting from Oklahoma State University and is a Certified Public Accountant.